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The top 11 ACA terms you need to know for year end

Published: Nov 27, 2018

Well, it’s that time again – we’re all scrambling frantically to make sure we’ve got everything we need in place for a smooth year end. As if all the year end payroll, tax, performance, and budgeting activities weren’t enough, we also have to dust off our memories around yet another critical compliance area: the Affordable Care Act (ACA). Yep, that’s right, it’s still alive and kicking, which means we have to manage it. Don’t worry, though; we’ve got you covered. We’ve pulled together a list of the top ACA terms you should remember to help you shake off the cobwebs and prep for year end.

Let’s take a look, shall we?

1. Applicable Large Employer (ALE)

An ALE is any employer who employed an average of at least 50 full time plus full time equivalent employees in a calendar year. Any organization that falls into this group needs to comply with ACA standards, so make sure you know if you fall into this category.

2. Aggregated ALE Group

This is what the government calls a group of related employers who are treated as a single ALE for the purposes of counting employees toward ACA compliance. Typically, this sort of thing applies if you’re an organization that shares the same ownership with several other organizations, and it usually involves a shared benefits or 401(k) program of some kind. You may also fall into this category if you’re part of a government entity, church, or convention or association of churches. The definitions used to figure out who counts as an aggregated ALE group comes from Section 414 of the IRS tax code, which governs controlled and affiliated service groups. There are a lot of different scenarios that can cause you to fall into this group, so it’s worth reading through those requirements (riveting, I know) or working with a consultant to see where you fall.

3. Designated Government Entity

So this one’s actually pretty simple when compared to the other terms. Shocking, right? All it means is that if you’re a government organization, sometimes there are other government groups or people who are legally allowed to report ACA information for you. That’s a designated government entity. For instance, if you run a public school the state could report ACA information for your teachers since they’re also technically state employees.

4. Hours of Service

Here’s another pretty simple one. This means any hour you pay an employee for. This includes vacation, holidays, jury duty, and any other time when an employee isn’t working but is entitled to pay. That’s it. Painless, right?

5. Variable or Non-Variable

Variable employees don’t have a standard number of average hours, so they need to be measured regularly to determine how much they work. Non-variable employees are the opposite – their hours don’t vary so they don’t need to be measured. Think hourly vs. salaried employees as an example of this. Wow, two terms in one! Bonus!

6. Full Time Employee

By ACA standards, any employee who averages at least 30 hours per week or 130 hours per month is considered a full time employee. This is especially important to remember if you tend to think in terms of a 40-hour workweek.

7. Full Time Equivalent (FTE) Employee Count

This one’s more a math problem than a definition, just to keep you on your toes. The FTE employee count is one of the formulas the government uses to help determine ALE status. You get the count by adding up all hours of service for non-full time employees up to a cap of 120 hours per month and then dividing by 120. You then add the result you get to your full time employees’ hours to help determine your ALE status.

8. Minimum Essential Coverage

This is the ACA term for any insurance plan that meets the ACA requirement for having health coverage. You need to be enrolled in a plan that qualifies as minimum essential coverage to avoid the ACA penalties for 2018 and earlier years. That was super clear, right? Luckily, there’s a great list of what plans do and don’t count as minimum essential coverage on the government’s healthcare site.

9. Minimum Value

To meet the minimum value requirement for ACA, the plan you offer has to pay at least 60 percent of the estimated costs of benefits for your employees. I guess this one counts as a math problem too.

10. Determination of Affordability

Every year, the government decides on what it considers the “affordable” in Affordable Care Act to mean. They do this by setting an ACA affordability percentage for the year, which is the maximum percentage of an employee’s household income an insurance plan should cost. For 2018 it’s set at 9.56 percent, meaning if an employee makes $50,000 a year their insurance plan shouldn’t cost more than $4,780.

11. AIR Filing System

You probably know at least something about this system if you’ve done ACA year end processing in the past, but it falls firmly in the “shaking off the cobwebs” category so I thought it was worth revisiting. AIR stands for ACA Information Return (acronym in an acronym – nice), and the AIR filing system is the way you can submit your ACA year end filings electronically. This gets overwhelming quickly if you look at the IRS’s instructions for it, but here’s the boiled down version of what you need to know. If you’re new to AIR, make sure you’ve got at least two “responsible individuals” from your organization registered on the IRS’s e-Services site. Start this process asap, since it takes two weeks to complete and then the confirmation number has to be mailed to the responsible individual’s home address. Next, you need to submit at least one application for a Transmitter Control Code (TCC), which will allow you to submit your ACA forms through the AIR system. Finally, you’ll need to do a one-time communication test using your TCC to make sure you can submit a file. If you’re not new to AIR, the TCC you have should still be valid and you don’t need to redo the communication test. Having HR software that manages ACA compliance also helps a lot here, since it will be able to put the information you need out in a format that works for AIR submission.

Wrapping up: How not to panic about ACA year end

I hope I’ve managed to present these key ACA terms in a way that was at least semi-entertaining and easy to understand. I’ll leave you with a few important dates to keep in mind:

All Form 1095-C submissions need to be filed by January 31, 2019.

All paper Form 1094-C submissions need to be filed by February 28, 2019, and all electronic submissions need to be filed by April 1, 2019.

This just in - The IRS extended the deadline for providing Form 1095-C to your employees. It's now due to individuals by March 4, 2019. Yay for more time! They also extended their "good faith effort" for 2018 forms, which means even if you file incorrect Forms 1095-C or forms with incomplete information you may be excused from any penalties. It doesn't count if you miss your deadlines, though, so get those forms and reports in on time.

Remember, the key to feeling less panicked about ACA year end and all your other compliance activities is being prepared. It’s critical to understand how compliance processes and regulations affect your bottom line, what the penalties are for non-compliance, and what opportunities you have to integrate these items into your HR technology ecosystem. That way, you can know that you’ve got an automated solution working for you to reduce headaches and make sure ACA and any other compliance activities you need to manage go off without a hitch.